[January 22, 2014]
(Reuters) — Detroit's available cash shrank less quickly than city
officials feared it would in the latest quarter, but it was still
down nearly 32 percent from the previous quarter to $87.5 million,
according to a report posted on the city emergency manager's website
on Tuesday.

The decline was significant, but did not approach the levels feared
by Detroit Emergency Manager Kevyn Orr. In August, he warned that
the city could be out of cash at year end if Detroit were unable to
gain unfettered access to casino tax revenue, which is pledged to
banks for payments on interest rate swap agreements that the city is
trying to terminate at a steep discount.

U.S. Bankruptcy Judge Steven Rhodes, who is overseeing Detroit's
bankruptcy case, last week rejected a deal for the city to end the
swaps at a 43 percent discounted payment to two investment banks.
Rhodes urged Detroit to renegotiate with its swaps counterparties,
UBS AG and Merrill Lynch Capital Services.

Detroit's cash on hand beat the city's forecast of ending the
quarter with just $40.7 million, largely due to higher-than-expected
property tax collections, the report showed.

Orr's spokesman warned that the city's cash position remains
vulnerable to a sudden decline.

"If the city loses the right to keep its casino revenues, which is a
very serious question right now in court with regard to the swaps
and (pension debt), then that $87.5 million could diminish rapidly,"
said Bill Nowling, the spokesman.

Detroit in 2005 and 2006 sold $1.45 billion of pension debt to
improve its unfunded public pension liability. The swaps were used
to hedge interest rate risk on some of the debt.

Orr took the cash-strapped city into federal bankruptcy court in
July to deal with more than $18 billion in debt and liabilities and
thousands of creditors.

The latest quarterly report was dated January 15, one day before
Rhodes' ruling on the swaps deal. In the report, Orr said he
believed "approval of the swap settlement would be an important step
in the city's restructuring."

The report uses the same positive language to describe a $285
million loan through Barclays PLC that Orr had negotiated, with $165
million earmarked to pay off the swap counterparty banks and $120
million to improve city services. Rhodes also rejected the loan for
the swaps payment.

Access to casino revenue, which totals as much as $180 million a
year, has emerged as a key element of Orr's bankruptcy strategy. Orr
also planned to use casino revenue to help secure the Barclays'
loan.

"If we don't do anything such as secure this casino revenue, if we
don't go to the capital markets and borrow additional funds, which
appears unlikely which the city has done every other year since 2008
to make up the difference, yes, the projections show that by
December of this year, we will run out of cash," Orr said in an
August 30 sworn deposition in the case.

Year-to-date revenue was down $6 million from the same period in
fiscal 2013 and operating expenses dropped by nearly $52 million,
the report showed. Costs were lower due largely to reduction of the
city workforce by 776 positions since the end of December 2012.
Detroit's fiscal year began July 1.

Detroit has kept making payments on secured debt, although the city
defaulted on $9.37 million in payments on October 1 for certain
general obligation bonds Orr deemed unsecured. Detroit paid $8.5
million toward the swap agreements in the quarter that ended
December 31, according to the report.

In the report sent to Michigan officials, Orr also stated he plans
to file a proposed plan of adjustment for the city before the March
1 deadline set by the court.

(Reporting By Karen Pierog; editing by
David Greising and David Gregorio)